The proposed di minimis exemption is worded as follows:
“SEC. 139G. GAIN FROM SALE OR EXCHANGE OF
VIRTUAL CURRENCY.
“(a) In
General.—Gross income shall not include gain from the sale
or exchange of virtual currency (as defined under section 408(m)) for other
than cash or cash equivalents.
“(b) Limitation.—
“(1) IN GENERAL.—The amount of
gain excluded from gross income under subsection (a) with respect to a sale or
exchange of virtual currency shall not exceed $600.
“(2) AGGREGATION RULE.—For
purposes of this subsection, all sales or exchanges which are part of the same
transaction (or a series of related transactions) shall be treated as one sale
or exchange.
“(c) Inflation
Adjustment.—In the case of any taxable year beginning in a
calendar year after 2018, the dollar amount in subsection (b) shall be
increased by an amount equal to—
“(1) such dollar amount,
multiplied by
“(2) the cost-of-living
adjustment determined under section 1(f)(3) for the calendar year in which the
taxable year begins, determined by substituting ‘calendar year 2017’ for
‘calendar year 2016’ in subparagraph (a)(ii) thereof.
Any increase determined under the preceding sentence shall be
rounded to the nearest multiple of $50.”
Sec. 10(c) of H.R. 2144 provides:
“Reporting Of
Gains Or Losses.—The Secretary of the Treasury shall issue regulations providing
for information returns on transactions in virtual currency (as defined
under section 408(m)) for which gain or loss is recognized.”
Proposed new §408(m) defines virtual currency as: “For purposes of
this subsection, the term ‘virtual currency’ means a digital representation of
value that is used as a medium of exchange and is not currency (within the
meaning of section 988).”
Also see sponsor Rep.
Davidson’s press release of 4/9/19 on the proposal. It addresses the token and blockchain aspects
of the proposal but not its tax proposals.
Observations/Queries: How broad are the reporting regulations
intended to be? More should be specified in the bill. For example, are the sponsors aiming to be
sure exchanges that exchange virtual currency for other virtual currency or
U.S. dollars issue a reporting form? Or
is this broader and any merchant would be issuing a report that it received
virtual currency and the value it assigned to it (generally, the selling price
of the goods or services exchanged)? Also, how broad should a $600 exclusion for
gain from transactions be applied? After
all, $100 of bitcoin in 2010, was worth about $4.3 million in fall 2017. And it is still worth a lot today. The exclusion would incentivize these holders
to only purchase goods and services from merchants who take bitcoin and to
never spend more than $600 at a time. This would enable them to exclude the
gain although it might take a long time to fully exclude the gain on that $100
cost basis of bitcoin. A policy goal of an exclusion is to simplify tax reporting
by not having to figure out the gain or loss when virtual currency is used to
buy low-value items. The foreign
currency exclusion at Section
988(e) is $200. Why not use that same amount for virtual currency? Also,
consideration should be given to not allowing the exclusion for bitcoin
acquired before a specified date due to the tremendous inherent gain that
exists in it that arguably defeats the policy reason for a de minimis reporting
rule. Also, I suspect including all of this highly appreciated virtual currency will make this bill cost too much and possibly not get enacted, when it can provide a helpful benefit to avoid tracking small gains and losses that might many times be less than $5.
For more on virtual currency and blockchaing, please visit my website on these topics.
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